Finnish Tax Office cracking down on overseas eCommerce VAT payments

Foreign eCommerce vendors will have a harder time avoiding paying the Value Added Tax (VAT) to finland. The Finnish tax authority has started an operation where it is searching for eCommerce shops in the European Union (EU) who have not paid VAT to Finland. For Finnish vendors this is good news as not paying VAT is a direct competitive advantage for foreign merchants.

If a foreign eCommerce store sells Finnish consumers over 35 000 Euro worth of goods in a year, it should register to the Finnish VAT registry and pay the tax to Finland. All the stores are not doing this, which leads to a disadvantage for Finnish online stores that are competing for the same customers.

The Finnish Tax Authority will start tracking down merchants who have not paid this tax to Finland. So far the project has caught around 200 stores that have not paid the VAT to Finland even though they should have. So far the largest individual purporter has had a revenue of over 13 Million Euro annually. This translates to millions lost in tax income for the Finnish state

By the end of the year the tax office estimates they will catch a further 150-200 offending vendors by the end of the year 2016. The most common category for foreign eCommerce is currently fashion and cosmetic. In these the price is the key driver and the VAT percentage is 24%.

The tax office can track the payments in the EU area through anonymous payment data from the payment gateways. Based on this payment traffic the authority can conduct whether the vendor is past the VAT payment limit of 35KEUR a year.

The model introduced by the Finnish state has sparked interest in other countries where overseas eCommerce is leading to significant losses in tax revenue.